This may sound like common sense but it does in fact need to be noted: according to IRS rules, a plan must operate according to its own plan document’s terms in order to maintain its tax status. If the plan document isn’t followed and that tax status is lost, plan fiduciaries will be held personally liable for this breach of fiduciary duty.
The IRS considers a plan not operating according to its own written terms an operational problem and a plan can be disqualified for not amending and remedying this defect.
It’s on plan fiduciaries to make sure that they fully understand their plan’s written documents so that they can operate in accordance with every term in those documents. The plan has to be operated in compliance with that document at all times.
It can be easy for a plan sponsor who isn’t an expert on every term of his plan’s written document to slip up and have his plan fall out of compliance with its own terms. That can result in personal liability for a breach of fiduciary duty due to a violation of IRS rules and a possible loss of tax-favored status.
One slip up by a plan fiduciary in failing to follow your plan’s terms can result in major losses for plan participants if tax statuses are changed as a result. The only way to fully guarantee that you as a plan fiduciary are personally protected from a potential breach is with fiduciary liability insurance.
Where can I obtain instant fiduciary liability insurance?
Where the ERISA fidelity bond is set in place to protect the participants of the plan it, however, does not protect YOU as the fiduciary.
Colonial Surety Company is a Treasury Listed surety company providing ERISA fidelity bonds packaged with fiduciary liability insurance that includes a cyber liability insurance endorsement at no extra cost. Colonial is one of the leading providers of ERISA related products, offering bonds approved by the Department of Labor. We make it easy to obtain your bond instantly as well as allowing you to purchase retroactive insurance for the years the plan was not previously covered.
Under ERISA, fiduciaries may be held personally liable for a breach of their responsibilities in the administration or handling of employee benefit plans. Under ERISA 410, the plan cannot relieve you of this responsibility with indemnification language, however, it specifically permits persons with personal liability to purchase fiduciary liability insurance. Covering yourself with fiduciary liability insurance gives you a piece of mind that you are protected. Learn how to bundle your ERISA bond and fiduciary liability insurance for a discounted rate.